Growth enables success.

Transcription

1 Growth enables success. Financial Report 2007

2 TEN-YEAR SUMMARY K+S GROUP Revenues, earnings, cash flow IFRSs IFRSs IFRSs IFRSs HGB HGB HGB HGB HGB HGB Revenues million 3, , , , , , , , , ,139.3 Earnings before interest, taxes, depreciation and amortisation (EBITDA) million Operating earnings (EBIT I/EBIT) million Earnings after market value changes (EBIT II) million (106.9) Earnings before taxes million (142.6) Earnings before taxes, adjusted 1) million Group earnings 2) million (93.3) Group earnings, adjusted 1), 2) million Gross cash flow million Capital expenditure 3) million Depreciation 3) million Working capital million Balance sheet Equity 1), 4) million 1, , Property, plant and equipment and intangible assets million 1, , Net indebtedness million 1, Balance sheet total million 2, , , , , , , , , ,249.5 Employees Employees as of 31 Dec. 5) number of 12,033 11,873 11,012 10,988 10,554 10,536 10,178 9,645 9,586 8,683 - of which trainees number of Average number of employees 5) number of 11,959 11,392 11,017 11,068 10,541 10,439 10,278 9,925 8,710 8,592 Personnel expenses 6) million Ratios Earnings per share, adjusted 1), 2) DVFA earnings per share Dividend per share 7) Dividend yield 7) % EBITDA margin % EBIT margin % Return on revenues 2) % Return on capital employed (ROCE) % Return on total investment % Return on equity after taxes 2) % Book value per share Gross cash flow per share The Share Closing price as of 31 Dec. XETRA Market capitalisation million 6, , , , Enterprise value as of 31 Dec. million 7, , , , Total number of shares as of 31 Dec. million Outstanding shares as of 31 Dec. 8) million Average number of shares 9) million ) From 2004 onwards, adjusted for the effect of market value changes for exchange rate hedging transactions; in the case of adjusted group earnings and adjusted earnings per share, the resulting tax effects were also eliminated 2) 2006: excluding non-recurrent deferred tax income of 41.9 million or 1.02 per share 3) For or in connection with property, plant and equipment and intangible assets 4) Up to the end of 2003 incl. 50 % special reserves and balance from capital consolidation 5) Workforce including temporary employees (without students and interns) measured on full-time equivalent basis 6) Personnel expenses also include expenditures connected with partial retirement and early retirement 7) The figure for 2007 corresponds to the proposed dividend; the dividend yield is based on the year-end closing price 8) Total number of shares less own shares held by K+S on the reporting date 9) Total number of shares less the average number of own shares held by K+S

3 BUSINESS SEGMENTS AT A GLANCE Potash and Magnesium Products % Revenues milion 1, , EBIT I milion Capital expenditure milion (4.9) Employees number 7,626 7, Potash and magnesium crude salts are extracted at six mines. We use them to produce a large number of fertilizers; in addition, we process our raw materials into products for technical, industrial and pharmaceutical applications. COMPO % Revenues million EBIT I million Capital expenditure million Employees number 1,252 1,260 (0.6) In the consumer area, COMPO carries a premium assortment of potting soils, plant care products, garden fertilizers and plant protection products. In the professional area, we offer complex fertilizers for special crops, horticulture, sports fields and public green areas. fertiva % Revenues million EBIT I million Capital expenditure million > Employees number (3.3) fertiva distributes the K+S Group s nitrogenous agricultural fertilizers. We market agricultural fertilizers that are produced exclusively for us by BASF and also trade in goods purchased from other leading European manufacturers. Salt % Revenues million EBIT I million (29.3) Capital expenditure million > Employees number 2,294 2, Salt products of the highest purity and quality are used as food grade salt, industrial salt and salt for chemical use as well as de-icing salt applied by winter road clearance services to ensure road safety. Production takes place in Germany and in other Western European countries as well as in South America. Waste Management and Recycling % Revenues million EBIT I million (16.7) Capital expenditure million Employees number The business segment uses caverns and infrastructure of active mines. K+S is Europe s leading provider of underground waste management ensuring safe disposal over longer periods of time. In addition, we offer special solutions that accommodate the recycling wishes of our customers. Services and Trading % Revenues million EBIT I million Capital expenditure million Employees number (4.9) Service activities are pooled in this business segment: logistics connected with product handling and the chartering of cargo ships; CATSAN granulation as well as our IT, consulting and trading services. These services, which are important for the K+S Group, are made available in a very efficient manner and at a price that is more attractive compared with the market.

4 K+S is one of the world's leading suppliers of speciality and standard fertilizers, plant care as well as salt products. With our products and brands, we offer our customers a range of needs-based goods and services which provides growth opportunities in virtually every sphere of daily life. In doing so, we assume active responsibility for the sustained growth of our world. Our 12,000 employees display their commitment towards this goal day in day out by applying their knowledge and experience. K+S Experience growth.

5 To our Shareholders II IV VI XI Letter to our Shareholders Board of Executive Directors Supervisory Board Report Supervisory Board The K+S Share and Corporate Governance 16 The K+S Share 28 Corporate Governance Report 33 Remuneration Report K+S Group Management Report 44 Business sectors and organisational structure 53 Internal enterprise management, goals and strategy 56 Employees 58 Research and development 62 Overview of course of business 69 Earnings position 76 Financial position 84 Asset position 85 General statement on the current economic situation 86 Business segment development 97 Risk Report 108 Subsequent events 108 Forecast Report Consolidated Financial Statements of the K+S Group 131 Income Statement 131 Statement of Changes in Equity 132 Balance Sheet 133 Cash Flow Statement 134 Development of Fixed Assets 136 Development of Provisions 136 Segment Reporting 138 Notes 187 Auditors Report XII Glossary

6 II To our Shareholders Letter to our Shareholders Letter to our Shareholders Norbert Steiner Chairman of the Board of Executive Directors To come to the point first: 2007 was a very successful year for your K+S Group operationally once again even though the clear and volatile depreciation of the US dollar led to unadjusted negative group earnings. In particular, we faced four big challenges: The enormous demand on the part of our customers for potash fertilizers but also nitrogen fertilizers could only be satisfied with the greatest of efforts, the warmest winter since weather records began, however, led to a sharp fall in the de-icing salt business in Europe last year and corresponding adjustments to our production, the clear weakening of the US dollar in relation to the euro forced us to lower the earnings forecast three times within the space of a few months. Currency developments also caused substantial losses in the market value of our US dollar options, which led to a loss in unadjusted earnings after taxes, and keeping strictly to the conditions imposed by public authorities, disposal of saline tailings pile and production water into nearby rivers, and the injection of such water into subterranean rock strata, were criticised by some sections of the public at the regional level. Instead of longer-term regulatory approvals, even temporary solutions were necessary at one site in order to maintain production there. Ladies and gentlemen, last year, we indeed achieved operating earnings of 286 million with revenues of 3.3 billion which means that revenues are clearly above the record highs of 2006, and operating earnings slightly. If one takes into account that our European salt earnings fell back by just under 75% because of the mild winter, and that our US dollar hedging rate was just 20% down compared with the previous year, I can say that I am really happy with that result. The key factor in this success was, above all, the strong demand for potash fertilizers, which could only be made available with a great deal of effort on the part of potash producers given a globally fully utilised capacity. But the nitrogen fertilizer markets also developed to a marvellous degree, after our home market Europe again started talking about the how agriculture is worth it again. The meagre demand supply ratio for fertilizers, but also the globally observed sharp increase in agricultural prices, have enabled us and our competitors to manifestly raise fertilizer prices and this trend is continuing. The positive development of operations was, however, also lifted by the gratifying earnings contribution achieved by the Chilean salt producer SPL, acquired in the summer of 2006 and successfully integrated in the meantime. Our strategy of regional diversification is therefore bearing fruit for the first time! We have been taking action on the subject of the US dollar too: At the turn of the year, we replaced the hedging system which had been a success in the past five years with a purely risk-limiting system that offers a more balanced relationship between opportunity and risk, given the strong US dollar fluctuations experienced recently. Finally, we are working with the highest environmental standards in potash production worldwide, and in future too we will not cease to keep the inevitable impact on human and natural life due to potash production to an absolute minimum. How has our share price reacted to all this? At the end of the year, it closed on its all-time high of , i. e. with a plus of 98 % within a single year.

7 To our Shareholders III Letter to Shareholders Board of Executive Directors Supervisory Board Report Supervisory Board To our Shareholders We would like to let you, our shareholders, participate in the positive course of operations in accordance with our long-term dividend policy. Despite the negative unadjusted group earnings after taxes, the Board of Executive Directors and the Supervisory Board will therefore propose to the Annual General Meeting a dividend of 2.00 per share for the past financial year. What will we be focusing on in the coming years? We want to consolidate and expand our leading market positions in our established business sectors. In particular, the expansion of our potash capacity is right at the top of our list of priorities. I hope we will be able to fill you in on this more in the near future. However, the successes of the past years cannot tempt us to become self-satisfied. Also in the future, we concentrate on our permanent objective of continuing to enhance the international competitiveness of the K+S Group in a sustained manner by constant cost management and optimising structures and processes. For example, this year too we used attractively priced container shipments and long-term overseas cargo ship contracts to a high degree and were able to keep our energy bill at approximately the previous year s level through the use of derivatives. In the COMPO consumer sector, we will bring new and innovative plant protection agents onto the market through our cooperation with Syngenta. The challenges for the future remain demanding, even though the signs are extremely favourable for the K+S Group s ability to achieve healthy growth marked by high earnings: Global population growth, higher meat consumption, and a related increase in the demand for feed as well as the marked rise in the importance of renewable raw materials will cause demand for large sections of our product range to continue to increase. In the salt business, the development of the global population and its changing living habits should make an equally positive impact; and the fact that we shall be needing de-icing salt for safety on roads and paths in future has again proved to be well founded in many regions on both sides of the Atlantic. Therefore, we are very confident concerning the course of business in 2008 from today s perspective, at least a doubling of operating earnings should be possible. On behalf of my colleagues on the Board, I would like to convey my sincere thanks to all employees of the K+S Group for their high commitment, great flexibility and the will to achieve success. My sincere thanks also go to Dr. Ralf Bethke, who retired on 30 June 2007 after 16 years of successfully acting as chairman of the Board of Executive Directors for the K+S Group. We are pleased to hear that he will continue to be associated with the Company as a member of the Supervisory Board. And I thank you the shareholders, customers and partners of the K+S Group for your trust, support and open dialogue in the past financial year. We want to actively shape what lies before us and impress you with our performance in the future too. Yours sincerely Norbert Steiner Chairman of the Board of Executive Directors

8 To our Shareholders Board of Executive Directors Words mean deeds.

9 Board of Executive Directors VIII Board of Executive Directors of K+S Aktiengesellschaft To our Shareholders Norbert Steiner (53) Chairman of the Board of Executive Directors Lawyer 2 Joachim Felker (55) Industrial Business Manager Salt business segment Finance Corporate Development and Controlling Legal affairs, Insurance and Compliance Taxes, Audit Investor Relations Communications Potash and Magnesium Products business segment COMPO business segment fertiva business segment 4 Dr. Thomas Nöcker (49) Personnel Director Lawyer 3 Gerd Grimmig (54) Engineering Graduate Waste Management and Recycling Animal Hygiene Products Consulting Mining and Geology Research and Development Environmental Protection, Occupational Safety, Quality Management Engineering, Technology, Energy Logistics (KTG) Trading business (CFK) Personnel IT-Services Purchasing Property Management Knowledge Management Dr. Ralf Bethke (65) Business Administrative Graduate Chairman of the Board of Executive Directors until 30 June 2007 (without picture)

10 VI To our Shareholders Supervisory Board Report Supervisory Board Report Gerhard R. Wolf Chairman of the Supervisory Board Dear Shareholders, In 2007, the K+S Group again proved its power for growth and operating earnings. The present wider and more developed structure of the business sectors is leading to a noticeable stabilization of fluctuations in individual activities and regions. However, negative changes in the market value of and losses from currency option transactions led to negative group earnings. The outlook for 2008 and 2009 is promising, though. It is pleasing to see that the capital market considers K+S AG to be an attractive investment. You, the shareholders, can be pleased that the price of your K+S share almost doubled in the past year despite considerable turbulence on the capital market. At the end of the business year, the market value of the Company was 6.7 billion. In the meantime, K+S has become a heavyweight on the MDAX. Supervisory Board work The Supervisory Board diligently performed the duties imposed on it by law and by the Articles of Association, and dealt extensively with the economic and financial development of the Company, as well as with its strategic direction. It advised the Board of Executive Directors on the management of the Company and monitored the latter s executive management. We were involved in all decisions of fundamental importance. The Board of Executive Directors informed us at regular intervals in a timely and comprehensive manner about the course of business, the earnings and financial position, and the planning and further development of the Company, including the search for external possibilities of growth. Briefings were also provided about risk/opportunity management and about the measures taken by the Board of Executive Directors. We looked in depth at the measures taken by the Board of Executive Directors to hedge the US dollar. Deviations arising in the course of business of the K+S Group or the individual business segments were explained in detail by the Board of Executive Directors and discussed by the Supervisory Board. The Supervisory Board regularly received written reports from the Board of Executive Directors for the preparation of meetings. Resolutions were also occasionally adopted in written form after extensive consultation in prior meetings. Between meetings, the Chairman of the Supervisory Board also maintained close contact with the Board of Executive Directors and discussed important events and upcoming decisions with it. Supervisory Board meetings The Supervisory Board met five times in the financial year 2007; in 2008 it has so far met twice. In the first meeting of the reporting year, held on 14 March 2007, we approved the annual financial statements for 2006 on the recommendation of the audit committee and after our own audit, as well as resolutions proposed for the agenda of the Annual General Meeting of 2007, and we discussed the business situation and outlook for the current year. Moreover, the Supervisory Board agreed to the sale of biodata ANALYTIK GmbH, which did not belong to the core business.

11 To our Shareholders VII Letter to Shareholders Board of Executive Directors Supervisory Board Report Supervisory Board To our Shareholders On 9 May 2007, we acquainted ourselves with business developments in the first quarter; the sharp decline of the de-icing salt business in Europe due to weather conditions was of particular concern. We also dealt in depth with the planned saltwater pipeline from the Neuhof location on the Werra, which is being publicly discussed in these regions in particular. A further topic at that meeting was the fuel-driven thermal power station at the Wintershall location and the investment share apportioned to K+S; the aim of the project is to achieve a favourable contribution to the energy costs. At the third meeting, held on 22 August 2007, we looked at the course of business in the first half of the year and held an intensive discussion on the outlook for the year as a whole. The US dollar hedging measures taken also came up, as did the task of reducing the costs in the salt business segment in view of the weak de-icing salt business. In the extraordinary meeting held on 24 September 2007, the purchase of approximately 7% of K+S AG s shares by the investment company Linea executed on 10 September 2007 was discussed. The Board of Executive Directors was requested to hold talks with Linea about their possible intentions and to develop K+S s own position. In addition, the Board of Executive Directors reported on the progress of the talks and the problems regarding the applied approval for injecting saline waste water at the Unterbreizbach site into the Gerstunger trough. Finally, we were informed in detail by the Board of Executive Directors at that meeting about the adjustments to the currency rate hedging system, which had become necessary as a result of the dramatic decline of the US dollar. At the last meeting of the year, held on 21 November 2007, the agenda included not only the current business situation but also the budget for 2008 and the medium-term outlook together with the capital expenditure framework for the following years. The plans were also particularly reviewed from the angle of conformity with strategic goals. Moreover, the Supervisory Board was informed by the Board of Executive Directors about the status of current projects which in future could probably extend the raw materials base of the Potash and Magnesium Products business segment. And, after the US dollar had suffered a further decline in value in the meantime and significant follow-up hedging had again become necessary, we supported the intention of the Board of Executive Directors to examine in a timely manner whether the currency hedging system which had been successful so far, or a different system, should be applied, considering future opportunity and risk aspects. As the Supervisory Board was well acquainted with the subject, it was, after receiving detailed written information, able to agree to the new hedging system proposed by the Board of Executive Directors, by means of the circulation procedure.

12 VIII To our Shareholders Supervisory Board Report At an extraordinary meeting held on 12 February 2008, the Board of Executive Directors informed the Supervisory Board about the outcome of the talks held with Linea. We also discussed the impact of the intended currency hedging for 2009 and In 2007, the Supervisory Board members took part in all meetings of the Supervisory Board with only a few exceptions. Committee meetings You can find an overview of our committees and their composition on the website of K+S Aktiengesellschaft under Corporate Governance. We formed three committees: the audit committee, the personnel committee and the mediation committee. In accordance with a new recommendation of the German Corporate Governance Code, the representatives of the shareholders additionally formed a nomination committee at the meeting held on 21 November The following were elected as its members: Ms. Benner-Heinacher, Dr. Bethke, Dr. Malmström and Mr. Wolf (committee chairman). The committee has since concerned itself with the election of candidates of the shareholders representatives for the Supervisory Board and prepared appropriate resolutions of the Supervisory Board. The audit committee met four times during the reporting period. On 2 March 2007, the committee examined the annual financial statements of K+S AG, the consolidated financial statements for 2006 and the respective management reports; special attention was devoted to the initial consolidation of the SPL Group. The committee also dealt with the proposal regarding the appointment of the auditors for the financial year 2007, examined the determination of the key audit issues, discussed the auditors fees, and monitored the auditors independence in accordance with the German Corporate Governance Code. The audit committee is convinced that there are no conflicts of interest concerning the auditors. The audit committee also looked in depth at the internal control and risk management system and was informed in detail by the Board of Executive Directors about the methods for determining risk probabilities. At the meeting of 29 February 2008 and in the presence of the auditors, the committee examined the annual financial statements for 2007, the consolidated financial statements for 2007, the respective management reports and the proposal of the Board of Executive Directors for the appropriation of profits. The audit reports and important issues regarding accounting policies were discussed with the auditors. The committee, after thoroughly examining and discussing the documents, recommended that the Supervisory Board should approve the prepared financial statements and agree with the proposal of the Board of Executive Directors concerning the appropriation of the net profit. Complaints regarding accounting, internal control relating to the accounting system and matters concerning the audit of the financial statements were not reported to the audit committee. The personnel committee met four times since 1 January At its meetings, it dealt with issues concerning the Board of Executive Directors and with the remuneration for the members of the Board of Executive Directors. For the mediation committee, formed in accordance with the German Co-Determination Act, there was no need to meet in the past financial year. The chairmen of the committees regularly reported to the Supervisory Board on their work.

13 To our Shareholders IX Letter to Shareholders Board of Executive Directors Supervisory Board Report Supervisory Board To our Shareholders Corporate Governance At regular intervals, the Supervisory Board considers the application and further development of the provisions contained in the German Corporate Governance Code within the Company. Detailed information concerning the Supervisory Board can be found in the Corporate Governance section of this financial report. During the past year, the Supervisory Board, together with the Board of Executive Directors, analysed the German Corporate Governance Code in the version of 14 June 2007 and at its meeting held on 21 November 2007, approved the joint declaration on conformity 2007/2008, which can be found on the website of K+S Aktiengesellschaft under Corporate Governance and on page 28 of the financial report. At that meeting, the chairman of the Supervisory Board also reported on the outcome of examining the efficiency of the Supervisory Board s work in accordance with Section 1 of its by-laws. The whole body stressed the extensiveness of the information provided by the Board of Executive Directors, as well as the Supervisory Board s open and intensive discussion and pertinent decision making, so that there is currently no need to consider measures designed to improve efficiency. In accordance with the latest amendment of the German Corporate Governance Code, the audit committee will in future also be dealing with the subject of compliance. The Board of Executive Directors was therefore requested to provide an overview of the status of current compliance management in the forthcoming August 2008 meeting. Conflicts of interest within the meaning of Section 17 of the by-laws of the Supervisory Board and Item of the German Corporate Governance Code did not arise. Annual and consolidated financial statements Deloitte & Touche GmbH, Hanover, audited the annual financial statements and the Management Report of K+S Aktiengesellschaft as well as the consolidated financial statements and the Group Management Report for 2007 and issued unqualified audit opinions. The consolidated annual financial statements for 2007 have been prepared in accordance with internationally recognized accounting principles (IFRSs). The Supervisory Board received the aforementioned documents and the Board of Executive Directors recommendation concerning the appropriation of the retained profit on time. The audit reports prepared by Deloitte & Touche GmbH were also made available to all the members of the Supervisory Board and were considered in depth at the Supervisory Board meeting held on 12 March 2008 to which the auditors Deloitte & Touche GmbH were invited. All questions asked at the meeting were answered exhaustively by the Board of Executive Directors and the auditors. In addition to the unqualified audit opinion, Deloitte & Touche also confirmed that the risk early detection system corresponds to the legal requirements and is suitable for the specific requirements of the K+S Group. The Supervisory Board subjected the annual financial statements, the consolidated financial statements, the Management Report and the Group Management Report to an independent review, and the findings of its inspection provided no basis for raising any objections. In its assessment of the business situation of K+S Aktiengesellschaft and the Group, the Supervisory Board is in agreement with the Board of Executive Directors. The Supervisory Board therefore follows the recommendation of the audit committee and approves the financial statements and management reports for financial year The annual financial statements of K+S Aktiengesellschaft were thus ratified. The proposed resolution on the appropriation of profits was also examined with regard to the present and future expected financial situation of the K+S Group and found to be balanced. The Supervisory Board therefore endorses the proposal of the Board of Executive Directors in recommending an unchanged dividend of 2.00 per share for the financial year 2007 at the Annual General Meeting to be held on 14 May 2008.

14 X To our Shareholders Supervisory Board Report Composition of the Supervisory Board and the Board of Executive Directors In the Supervisory Board meeting of 14 March 2007, Mr. Steiner was appointed successor to Dr. Bethke as chairman of the Board of Executive Directors, with effect from 1 July Dr. Bethke, who left the Board of Executive Directors on 30 June 2007, merits special thanks and high recognition for his long-standing and very successful work for the Company. On 9 May 2007, the Annual General Meeting appointed him to the Supervisory Board with effect from 1 July Mr. Helmut Mamsch tendered his resignation from the Supervisory Board with effect from 30 June 2007 after a period of cooperation lasting almost ten years. Also him is sincerely thanked for his commitment. The Supervisory Board expresses its thanks to the Board of Executive Directors, the executive managements of the associated companies, all employees and employee representatives for their good work in the past year. Kassel, 12 March 2008 On behalf of the Supervisory Board Gerhard R. Wolf Chairman

15 To our Shareholders XI Letter to Shareholders Board of Executive Directors Supervisory Board Report Supervisory Board Supervisory Board To our Shareholders Gerhard R. Wolf Chairman Former member of the Board of Executive Directors of BASF SE Michael Vassiliadis Vice Chairman Member of the Managing Board of the Mining, Chemicals and Energy Trade Union Dr. Ralf Bethke Former chairman of the Board of Executive Directors of K+S Aktiengesellschaft Jella S. Benner-Heinacher Federal Manager of the Deutsche Schutzvereinigung für Wertpapierbesitz e.v. Karl-Heinz Georgi Principal of the Haltern am See Education Centre of the Mining, Chemicals and Energy Trade Union Rainer Grohe Former executive director of the Galileo Joint Undertaking Dr. Karl Heidenreich Former member of the Board of Executive Directors of Landesbank Baden-Württemberg Rüdiger Kienitz Member of the Works Council of the Werra Plant of K+S KALI GmbH Klaus Krüger Chairman of the Group Works Council of the K+S Group Dieter Kuhn Vice Chairman of the Group Works Council of the K+S Group Heinz-Gerd Kunaschewski Vice Chairman of the Collective Works Council of Kali und Salz Dr. Bernd Malmström Lawyer, advisor to the Board of Executive Directors of Deutsche Bahn AG Dr. Rudolf Müller Member of the Board of Executive Directors of Südzucker AG Renato De Salvo Vice Chairman of the Works Council of the Sigmundshall Plant of K+S KALI GmbH Dr. Eckart Sünner Head of the Central Legal Affairs, Tax and Insurance Department of BASF SE Dr. Helmut Zentgraf Manager of the Werra Plant of K+S KALI GmbH As of 31 December 2007

16 The impressive long-term performance of our share confirms the success of our forward-looking corporate policy. Success that our shareholders profit from especially, but which we benefit from too.

17 Growth means dividends. The K+S Share and Corporate Governance

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19 Our shareholders have been putting their trust in us for many years. And for years, our stock has continuously outperformed the MDAX and the DAX, being able to improve its performance by more than 800 % over the past five years alone. We have also increased our dividend substantially during this period. A trend that impressively confirms our corporate policy of long-term and responsible thinking and management. With this strategy, which we continue to pursue systematically, we will also create a solid basis for our corporate success in the future.

20 16 THE K+S SHARE Price of K+S share almost doubles in 2007 (+ 98 %) The K+S share is thus a DAX and MDAX top performer 5,000 invested in K+S shares worth 55,422 in five years; % At just under 83 %, the K+S share free float remains broad Analyst coverage increases further At 2.00, proposed dividend on previous year s level K+S Share and Corporate Governance The K+S Share ISIN: DE WKN: Bloomberg: SDF Reuters: SDFG K+S Share Key Indicators IFRSs IFRSs IFRSs IFRSs HGB Earnings per share, adjusted 1), 5) /share DVFA earnings per share /share 1.53 Dividend per share 2) /share Gross cash flow per share /share Book value per share /share Year-end closing price (XETRA) Highest price (XETRA) Lowest price (XETRA) Year-end market capitalisation million 6, , , , Total stock exchange turnover million 10, , , Average daily turnover million MDAX weighting % Total number of shares as of 31 Dec. million Outstanding shares as of 31 Dec. 3) million Average number of shares 4) million Total dividend payment 2) million Dividend yield (closing price) 2) % Return on equity after taxes 1), 5) % Return on capital employed (ROCE) % Enterprise value (EV) as of 31 Dec. million 7, , , , Enterprise value to revenues (EV/revenues) x Enterprise value to EBITDA (EV/EBITDA) x Enterprise value to EBIT (EV/EBIT) x ) From 2004 onwards, adjusted for the effect of market value changes and the resulting tax effects 2) The figure for 2007 corresponds to the dividend proposal 3) Total number of shares less the own shares held by K+S on the reporting date 4) Total number of shares less the average number of own shares held by K+S 5) In 2006: excluding non-recurrent deferred tax income of 41.9 million or 1.02 per share

21 The K+S Share A turbulent year for the stock exchange Following four excellent years for the stock exchanges in Europe and in the United States, the highs on the European and American equity markets continued during the first half of Essentially, there were three factors that proved decisive: (1) a relatively high level of liquidity, (2) very brisk M&A activity and (3) solid corporate earnings. From the summer onwards, however, uncertainties arising from the US subprime mortgage crisis resulted in considerable consolidation on the equity markets. After a marked recovery during the third quarter, with further write-downs running into billions, the subprime mortgage crisis led to another slide in prices in November. The share price performance in the emerging markets of South America and tiger economies of Asia told quite a different story. The stock exchanges in those regions again performed very well, reflecting their strong economies. The prices for numerous commodities rose sharply, relatively unaffected by the market turmoil mentioned above. Along with gold and oil, primarily agricultural raw materials should be mentioned here. On the technology share markets, solar energy stocks showed significant gains above all. K+S Share and Corporate Governance DAX beats second-line stocks The German DAX stock index closed at 8,067 points on 28 December Whilst the above-mentioned crisis also affected the 30 biggest German stocks on the index, year on year, however, the index performed very successfully, gaining 22.0 %. The MDAX, the index for the 50 largest stocks after the DAX stocks from the more classic sectors and a more important benchmark for K+S, was affected more seriously by the market turmoil, due to a higher average pricing. For the first time in six years, it thus fell in comparison to the performance of the DAX and closed the year at 9,864 points, a gain of 4.9 %. If we consider the performances of the DAX and the MDAX during the last five years (see table below), the MDAX was, however, able to defend its lead over the DAX. While the DAX rose by almost 179 %, the MDAX proved able to gain by about 226 % over the same period. Performance 1 year 5 years 10 years Performance in % K+S share (excluding dividends) ,078.7 K+S share (including dividends) ,211.0 DAX (performance index) MDAX (performance index) Source: Bloomberg

22 18 Performance of the K+S share in relation to the DAX and MDAX in 2007 (index: 31 December 2006; in %) K+S Share and Corporate Governance The K+S Share Monthly highest, lowest and average price of K+S share since 1 January 2007 (in ) Dec Jan Feb Mar April May June 07 K+S DAX MDAX Source: Bloomberg July Aug Sept Oct Nov Dec Jan Feb Jan.07 Feb. 07 Mar. 07 April 07 May 07 June 07 July 07 Aug. 07 Sept. 07 Oct. 07 Nov. 07 Dec. 07 Jan. 08 Feb. 08 Highest/lowest price monthly average Source: Bloomberg Price of K+S share almost doubles during year under review (+ 98 %) As stated in the ten-year overview in the cover of this financial report, the K+S share cost less than 12 at the end of Since then, the price of the share has increased by a multiple of almost 14. In 2007 alone, it almost doubled in value and thus, from an annual perspective, achieved the highest growth in the history of K+S. The path to the high for the year of the K+S share price on 28 December 2007 was, however, by no means a straight one. The following important events impacted the trend in the price in 2007: Following an initial further gain in the K+S share price at the start of the year, it fell somewhat from mid-february until the 14 March because of the mild winter and the

23 The K+S Share 19 Market capitalisation of K+S Aktiengesellschaft As of 31 December (Basis: XETRA, in billion) hesitant reaction of the capital market until the publication of the figures for However, the publication of the Annual Report 2006 and the positive outlook that emerged from this report then gave a further boost to the K+S share in mid-march. At the start of August 2007, speculation about possible transport problems for the Russian potash producer Silvinit resulted in a substantial increase in the share price to almost 120. The next phase saw turbulent price performance, and not only of our share. On the one hand, the K+S share price suffered as a result of the subprime mortgage crisis in the United States, but on the other hand, it was also impacted by the fact that, at 120, the existing price targets of the analysts had more or less been achieved at that point in time. After the publication of the figures for the second quarter, the share thus fell significantly in value and was again priced at around 90. On 13 September, Linea Ltd. announced that it had acquired 6.75 % of our shares. Speculation surrounding the intentions of this new shareholder gave the share a powerful boost. On 1 October, in an ad hoc notification, we announced a negative effect on earnings resulting from the adjustment of our US dollar hedging in the light of a further weakening of the US dollar. However, this only resulted in a slight fall in the share price, as further substantial price rises for potash were announced. At the start of November, it became known that K+S will probably be included in the very important MSCI standard index, which is used as a benchmark by investors around the world. This triggered strategic advanced buying on the part of investors, which had a positive effect on the development of the share price. Following the strong share price performance of international potash producers, November saw profit taking. In spite of the fact that the figures for the third quarter were better than expected, continued uncertainty on the capital market resulting from the subprime mortgage crisis and the further negative impact on K+S s earnings due to the accelerated depreciation of the US dollar led to a price drop of up to 25 % to Once this relatively low level had been reached, investors apparently took the opportunity to buy the share at a bargain price. In addition to this, announcements of further substantial increases in the potash price had a very positive effect on the performance of the share during the last few weeks of the year. K+S Share and Corporate Governance On 28 December 2007, our share was priced at , the highest price so far in its history. This represents an increase of 98.0 % in terms of performance over the course of the year. If the dividend that was paid in May 2007 is also taken into account, the gain even amounted to %. The performance of the K+S share over the course of the year was almost 93 percentage points better than that of the MDAX and 76 percentage points better than that of the DAX. It thus proved to be one of the top performers of 2007 among the stocks listed on the DAX and the MDAX.

24 20 At the beginning of 2008, the K+S share was able to maintain its position very well in spite of the in part dramatic price slides on the international stock exchanges. On 29 February 2008, the K+S share was quoted at This means that the price of our share was up by a further 18.4 % on the end of K+S Share and Corporate Governance The K+S Share Performance of the K+S share in relation to competitors in 2007 (index: 31 December 2006; in %) Performance of the K+S share in relation to competitors in 2007 We consistently follow the relative performance of our share compared to our competitors, i. e. our peer group. It includes among others North American fertilizer producers PotashCorp and Mosaic, the Russian potash producer Uralkali as well as Norwegian fertilizer supplier Yara Dec Jan Feb Mar April May June July Aug Sept Oct Nov Dec Jan Feb. 08 K+S PotashCorp Mosaic Yara Uralkali: IPO London: 15 Oct. 07 Source: Bloomberg 60,000 50,000 40,000 30,000 20,000 10,000 0 Performance of portfolio of K+S shares* (in, as of 31 Dec.) 5, , * including reinvestment of dividends on the day after the Annual General Meeting and cash remaining The diagram above shows that the positive conditions for the international fertilizer industry have led to significant rises in the share price for all suppliers listed on the stock exchange. The share price performance of Mosaic and PotashCorp also benefited from additional effects: On the one hand, these were still catch-up effects from 2006, during which year the share price trend of these producers had been depressed due to potash production cutbacks as a result of the protracted negotiations with China. On the other hand, in particular Mosaic performed extremely well during the fourth quarter, above all due to greater activity on the market for phosphates. In comparison with its competitors, the K+S Group was only impacted to a limited extent by the market trend for nitrogen and phosphate fertilizers, and additionally it focuses more on speciality fertilizers, while last but not least operating with its salt business in a market that is subject to quite different factors than the global market for fertilizers.

25 The K+S Share 21 Shareholder structure as of 29 Feb (in %) A financial investment in K+S shares has grown 61.8 % p.a. over the past five years An investment in K+S shares has paid off extraordinarily well during the last five years. A K+S shareholder who acquired K+S shares for 5,000 on 31 December 2002 and reinvested dividend payments made over the following five years in K+S shares found his portfolio worth about 55,422 on 31 December Thus, the value of the portfolio rose by an average 61.8 % over the five years. By comparison: Over the same period, the DAX and the MDAX saw an annual yield of % and % respectively per year. Freefloat BASF SE 10.3 MCC Holding Limited (Linea) 7.28 Shareholder structure characterised by high free float BASF SE holds about 10 % of our shares. Moveover, 7.28 % of our shares are held by MCC Holding Ltd. (Linea Ltd.) This is a corporate entity which manages the industrial holdings of Andrey Melnichenko and has a stake, for example, in the Russian agrochemicals company EuroChem. Furthermore, the following investment companies informed us that as at 22 February 2008, they have exceeded the reportable thresholds: Capital Group with its subsidiary Capital Research & Management: 5.20 % Janus Capital Group: 5.18 % Fidelity International with FMR LLC.: 4.97 % The Bank of New York Mellon Corporation with its subsidiary Newton Management Ltd.: 3.08 % K+S Share and Corporate Governance Dividend per K+S share and dividend yield* % dividend in dividend yield in % * Without inclusion of corporate income tax benefit; based on XETRA year-end closing prices Under the free float definition applied by Deutsche Börse AG, the free float amounts to a good 82 %. A shareholder identification process carried out in advance of the 2007 Annual General Meeting came to the following results: 21 % of the shares outstanding were held by domestic institutional investors, and 39 % by foreign ones. We further assume that just under 30 % are held by private investors. In terms of geographical distribution, just under two thirds of our shares are held in Germany if it is assumed that the private shareholders are exclusively German residents. 18 % of the K+S shareholders are based in the US and Canada, a further 14% in Great Britain and Ireland, 4 % in France and about 2 % in Switzerland. Dividend proposed again at 2.00 We pursue an earnings-based dividend policy and normally strive for a dividend payout rate of 40 % to 50% of the adjusted group earnings after taxes. The Board of Executive Directors and the Supervisory Board will thus propose to the Annual General Meeting that the dividend should remain unchanged and 2.00 be paid for the past financial year in accordance with earnings. This corresponds to a dividend payout rate of about 47 %. With million shares outstanding, this results in a total dividend payment of 82.5 million. Due to the strong price development, on the basis of the share price of at the end of the year, our dividend proposal will lead to dividend yield of 1.2 %.

26 22 K+S Share and Corporate Governance The K+S Share Listing in stock market indices According to the stock exchange ranking of February 2008, we are currently in 1st place on the MDAX in terms of market capitalisation (previous year: 11th) and, in terms of trading volume, placed 2nd (previous year: 10th). We have thus improved on our position with regard to both criteria and in the meantime have become one of the largest companies quoted on the MDAX. Alongside high market capitalisation, the level of trading volume is almost of equal importance for us because higher trading volume and greater liquidity makes the share more attractive for major institutional investors and less susceptible to fluctuations. The K+S share is currently quoted in the following stock market indices: MDAX DJ STOXX 600 STOXX Total Market Index MSCI World Standard MSCI Europe Standard MSCI Germany Standard HDAX CDAX Overall Index Prime Allshare Index Classic Allshare Index Mid Cap Market Index Prime Sector Chemicals Industry Group Chemicals/Commodity Regular research coverage of K+S: B. Metzler seel. Sohn & Co. Bankhaus Lampe Berenberg Bank BHF-Bank (new) CA Cheuvreux Commerzbank Securities Credit Suisse (new) Deutsche Bank Dresdner Kleinwort DZ Bank HSBC Trinkaus & Burkhardt Independent Research (new) Landesbank Baden-Württemberg Landsbanki Kepler Main First Bank M. M. Warburg & Co. Merck Finck & Co. Sal. Oppenheim Research Silvia Quandt Research (new) UniCredit (HVB) Equity Research Viscardi Securities WestLB WGZ-Bank You can find further information on our homepage at In the last of the surveys that we carry out regularly, 14 banks gave us a "buy/accumulate" recommendation, two a "hold/neutral" recommendation and two a "reduce/sell" recommendation. Those analysts who follow us envisage an average target price for our share of just under 210. The Investors Relations section of our homepage carries a constantly updated overview of current research recommendations as well as consensus forecasts for revenues and earnings.